בס״ד

Building Permit DENIED! Carlisle Faces the Whirlwind (CSL)

Posted on December 27, 2021

Carlisle Companies (NYSE:CSL) is a manufacturer of building supplies.  Their product line also includes the usual array of foams and powders, sealants and adhesives, because, hey! you gotta poison people somehow.

Anyway, we like the downside on Carlisle at the moment, and we’ve structured a trade to profit handsomely from just a moderate decline.  As always, it’s a risk-defined affair.

Fundamentals

Carlisle stock is overdone both from a fundamental and technical perspective.

  • P/E ratio on the stock is 37.71,
  • Annual Yield is 0.90%,
  • Price/Book is 4.95, and
  • EPS crashed 28.4% this year (i.e., contracted).
  • Moreover, in the last six months, insiders cashed out of $38 million worth of stock (37.03% of their collective stake).

And that, we believe, marks the end of the CSL bounce.

CSL spent nearly $300 million buying back its shares this year, which helps shareholders, yes, but does nothing for the business.

A number of acquisitions in 2021 accounts for all the company’s growth.

Now look at the chart –

Technically, we’re facing the following –

  1. An overbought RSI read from late October (in green), that triggered
  2. Negative divergence against price (green arrows).  Taken together, the two signal a topping process that’s now well underway.
  3. Resistance at 245 has proven formidable (in red), and
  4. A gap down to 218 still needs filling (purple).
  5. Finally, CSL has not touched its all-important 137 DMA in thirteen months (in blue).  Another indication that we should be headed down toward the 215 range.

And it’s for all the foregoing that we offer you this –

A Jew and His Money recommends you consider selling the CSL February 18th 230/240 CALL spread* for a credit of $3.60 (16.00/12.40) and buying the CSL February 18th 240/230 PUT spread** for $5.90 (11.00/5.10).  Total debit on the trade is $2.30.

[*Sell the 230 CALL and buy the 240 CALL.  **Buy the 240 PUT and sell the 230 PUT.]

Rationale: we have a reasonable maximum take of $7.70 on just $2.30 laid out (334%).

But we also have the option of playing the trade more aggressively by selling the 220 PUT instead of the 230.  That wrinkle would raise the cost of the PUT spread to $8.85 (11.00/2.15), and pay us $14.75 for $5.25 spent.  A greater haul, but smaller by percentages.

Max loss on the trade as recommended above is $12.30 (difference between the CALL strikes plus the initial debit).

We’ll likely close on the first dip toward 215/220.

It could be very close.

May He who causes the wind to blow and the rain to fall, bless us all through the winter.

With kind regards,

Hugh L. O’Haynew

 

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